The BDSM Economic Theory

In case you weren’t sure why the SEC was unable to catch Bernie Madoff or police Wall Street over the past few years, thankfully the answer is finally here. On April 23, 2010, a newly released government report concluded that many senior SEC officials spent hours viewing and downloading pornography on the agency’s computers.

What does one have to do with the other. Cue Californian Republican Rep. Darrell Issa:

Issa remarked it was, “disturbing that high-ranking officials within the SEC were spending more time looking at porn than taking action to help stave off the events that put our nation’s economy on the brink of collapse.”

Fair enough. Although in the SEC’s defense, maybe they heard rumors that Bernie Madoff was going to make a sex tape with Paris Hilton. But get ready for a Republican’s logic to take a turn for the surreal (I’m sure you’re shocked).

Issa continued, “This stunning report should make everyone question the wisdom of moving forward with plans to give regulators like the SEC even more widespread authority.”

Just to make sure I’m getting this straight, Darrell Issa contends that the SEC and other regulatory agencies failed in their supervisory duties because they spent time viewing pornography, which led to the near-collapse of the world financial system and the current recession. So, if you connect the dots, Porn Stars almost destroyed the world.

(As a quick aside, you know every time a politician, especially a Republican, comes out and makes some type of stand having to do with sexual morality, they are for sure going to get caught 8 months later playing footsie with some Bolivian, midget prostitute in a cheap motel. I’d suggest we take a look at Issa’s browsing history to see if he’s earning his paycheck.)

Thankfully, if you are wondering if there are other possibilities why the SEC hasn’t seemed up to snuff over the past few years, the Wall Street Journal’s Thomas Frank lays it out perfectly.

Start with political leaders who clearly didn’t believe in the mission; proceed to the agency’s grotesquely underfunded workplace where lawyers had to do their own filing, mail-sorting and photocopying; and arrive, finally, at the revolving door, which sometimes transformed SEC jobs into stations on the Wall Street career path and worked fairly predictable effects on enforcement.

This was an agency whose mandate, essentially, was to crawl out on an ice floe and die. Were we to look closely at its employees’ computing habits during the Bush years, I bet we’d also find that they bought stuff on eBay, wrote copious email, and read a lot of blogs.

While it’s very easy (and fun) to point out the absurdity of Issa’s position, I think his comments actually speak to a much more fundamental point. Regulatory bodies only work if they and the executive branch are committed to regulation. Issa is looking for anyway he can to undermine the credibility and authority of the SEC because he simply does not believe in their mission.

As the current debate over financial reform continues, we have to realize that simply passing new laws and regulations won’t solve squat unless we can effectively change the regulatory culture in Washington. We have to respond swiftly to clowns like Issa who do not believe in capitalism. A true capitalist knows that we need a strong and effective legal and regulatory force to ensure that everyone is operating on the same playing field and that our markets are “free”, not manipulated by those with greater access. And if the SEC’s confidence and mandate are robust, who cares what they do during their lunch hour?